Energy Partners details $1.3 billion credit facility, $730 million notes for Stone purchase

By Sara Rosenberg

New York, July 21 - Energy Partners Ltd. outlined details on its proposed financing for the acquisition of Stone Energy Corp., including that the new debt will be comprised of a $1.3 billion credit facility and $730 million of senior notes, according to an S-4 filed with the Securities and Exchange Commission Friday.

Bank of America is the lead bank on the debt transactions.

The credit facility will consist of a $600 million four-year revolver and a $700 million five-year second-lien term loan.

The revolver is expected to have an interest rate ranging from Libor plus 100 to 200 basis points and a commitment fee that can range from 25 to 50 bps depending on use, and the initial borrowing base availability is expected to be set at $350 million.

The second-lien term loan will be talked at Libor plus 375 to 400 bps if corporate and/or family ratings are B2/B, Libor plus 400 to 425 bps if corporate and/or family ratings are B3/B-, and Libor plus 450 to 475 bps if the term loan is rated less than B3/B-.

The second-lien term loan contains call protection of 102 in year one and 101 in year two.

As a backup for the bonds, the company has obtained a commitment for a $730 million 12-month unsecured bridge loan at Libor plus 400 bps, increasing by 50 bps after six months, and by another 50 bps every three months thereafter. There is an 11% cap on the interest rate.

Under the purchase agreement, Energy Partners will acquire all of the outstanding shares of Stone for $51.00 in cash or stock at the election of the holder, subject to a collar and other limitations.

The acquisition is valued at $2.2 billion, of which $1.4 billion is Stone equity and $800 million is Stone debt that will be refinanced, including its 8¼% senior subordinated notes due 2011, 6¾% senior subordinated notes due 2014 and $275 million of senior floating-rate notes.

Energy Partners expects that the combined company will generate significant cash flow and therefore will be able to substantially reduce debt to about 50% of book capitalization by the end of 2008.

The transaction, which is expected to close early in the fourth quarter, is subject to approval by both companies' shareholders as well as customary closing conditions and regulatory approvals, including clearances under the Hart-Scott-Rodino Antitrust Improvements Act.

Energy Partners is a New Orleans-based independent oil and natural gas exploration and production company. Stone is a Lafayette, La.-based independent oil and gas company.

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